STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

S & S CONTRACTING, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 91-5224

) DEPARTMENT OF TRANSPORTATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to Notice, a formal hearing was conducted in this case on April 3, 1992, in Tallahassee, Florida, before the Division of Administrative Hearings, by its duly designated Hearing Officer, Daniel Manry.

APPEARANCES

FOR PETITIONER: John O. Williams, Esquire

Lindsey & Williams, P.A. Renaissance Square

1343 East Tennessee Street Tallahassee, Florida 32308

FOR RESPONDENT: William H. Roberts, Esquire

Department of Transportation 605 Suwannee Street

Haydon Burns Building Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue for determination in this case is whether Petitioner is entitled to certification as a Disadvantaged Business Enterprise pursuant to Florida Administrative Code Chapter 14-78.

PRELIMINARY STATEMENT

Petitioner applied for certification as a Disadvantaged Business Enterprise ("DBE"). By letter dated May 14, 1991, Respondent notified Petitioner that the application for certification as a DBE had been denied. Respondent determined that Petitioner ". . . does not appear to be an independent business entity . .

." within the meaning of Florida Administrative Code Rule 14-78.005. Respondent further found that Petitioner had failed to provide financial statements and records of gross receipts for the prior three years for the corporate shareholder of 49 percent of Petitioner's stock. On May 24, 1991, Petitioner filed a Request For Administrative Hearing.

The matter was referred to the Division of Administrative Hearings for assignment of a hearing officer on August 20, 1991, and assigned to Hearing Officer J. Stephen Menton on August 22, 1991. A formal hearing was scheduled

for November 14, 1991, by Notice of Hearing issued on September 11, 1991. The formal hearing was rescheduled for April 3, 1992, pursuant to the Order Granting Continuance and Rescheduling Hearing entered on January 23, 1992. The matter was transferred to the undersigned on or about April 2, 1992.

At the formal hearing, Petitioner presented the testimony of Ms. Andrea Williams, Petitioner's secretary, and Mr. Jerry Smith, Petitioner's president. Petitioner submitted one exhibit which was admitted in evidence without objection.

Respondent presented the testimony of Ms. Juanita Moore, Respondent's Acting Manager of Contracts Administration. Respondent submitted six exhibits for admission in evidence. Respondent's Exhibits 1-6 were admitted in evidence without objection. The exhibits submitted by Petitioner and Respondent are identified in the transcript of the formal hearing.

A transcript of the formal hearing was filed with the undersigned on April 20, 1992. Proposed findings of fact and conclusions of law were timely filed by Petitioner on April 30, 1992, and by Respondent on April 29, 1992. The parties' proposed findings of fact are addressed in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. Petitioner is a small business concern organized as a closely held Florida corporation. Fifty-one percent of Petitioner's stock is owned individually by its president, Mr. Jerry Smith ("Smith"). Smith is a black American and a minority for purposes of certification as a disadvantaged business enterprise ("DBE"). All of Petitioner's employees are minorities for purposes of DBE certification.

   
   

2. Petitioner's by laws require 51 percent of the vote for any action for which voting approval is needed. Petitioner has no other authorized or outstanding classes of stock, and Smith owns no stock of any kind in any other corporation.

   
   

3. Petitioner's remaining stock is owned by P.J. Constructors, Inc. ("P.J."). P.J. is wholly owned by Messrs. Mort Myrick and Paul Guptill ("Myrick" and "Guptill", respectively). Myrick and Guptill served on the board of directors for Petitioner until they resigned on December 18, 1989. Since that time, neither Myrick nor Guptill have functioned in fact as officers or directors for Petitioner; although both are named as officers in various corporate documents executed for specific purposes.

   
   

4. Myrick and Guptill were authorized on June 14, 1988, as signatories on Petitioner's bank account at Peoples National Bank of Commerce in Miami, Florida ("Peoples"). Guptill was an authorized signatory as Petitioner's vice president, and Myrick was an authorized signatory as Petitioner's secretary and treasurer. After their resignation from the board of directors on December 18, 1989, no change was made to the form identifying authorized signatories for the bank account at Peoples. Guptill was authorized on July 26, 1990, as a signatory on Petitioner's bank account at First Union in Miami, Florida ("First Union") as Petitioner's vice president. Myrick and Guptill resigned their titles as officers and/or directors for Petitioner on January 8, 1991.

   
   

5. Both Guptill and Myrick remain as signatories on the bank account at Peoples, and Guptill remains as a signatory on the account at First Union.

   Neither Guptill nor Myrick, however, have access to or actual control over Petitioner's checks on either account. Further, it is Smith's clear intent, as communicated to Guptill and Myrick, that the latter two individuals have no actual authority to sign on Petitioner's accounts. Neither Guptill nor Myrick have ever signed checks on behalf of Petitioner or otherwise exercised control over Petitioner's funds. Smith is the only one of the three individuals who actually signs checks and exercises actual control over Petitioner's funds.

   
   

6. Petitioner is engaged in the road construction business. Petitioner has its own employees and owns its own construction and office equipment. Petitioner does approximately two percent of its business with P. J. In addition, Petitioner and P. J. occasionally lease equipment to each other at a price that is less than fair rental value. Guptill supervised the so-called "Overstreet Job" for Petitioner in 1990, but has not performed services for Petitioner on any other occasion. Guptill was compensated for his supervisory services. Guptill signed a change order for Petitioner on March 9, 1990, in connection with the Overstreet Job, but neither Guptill nor Myrick have ever signed a contract on behalf of Petitioner.

   
   

7. Myrick performed estimating services for Petitioner when Petitioner was without an estimator during 1990. Myrick also performs estimating services for Petitioner in road projects involving large embankments. Road projects involving large embankments comprise about one percent of Petitioner's total business. Myrick is compensated for his estimating services. Petitioner customarily contracts its estimating jobs to outside firms. The work performed by those estimating firms is reviewed and approved by Smith.

   
   

8. Smith is Petitioner's president and works full time for Petitioner. Smith has more than eight years experience in the conduct of Petitioner's business.

   
   

9. Decisions concerning Petitioner's policies, operation, and management are made solely and exclusively by Smith. Smith does not confer with Petitioner's board of directors before making such decisions. Smith has the exclusive authority and power to hire and fire Petitioner's employees. Smith signs all of Petitioner's checks and makes all decisions regarding bid proposals. Smith shares in Petitioner's profits and losses in accordance with his stock ownership interest. Petitioner's directors act in the best interest of the company. No formal or informal agreements limit Smith's authority and power to conduct the policies, operations, and management of Petitioner.

   
   

10. Petitioner's stock is not encumbered. Petitioner does not finance other companies and is not financed by other companies other than by commercial lenders. No other company pays the salaries of Petitioner's officers or employees or the other expenses incurred by Petitioner in the ordinary course of its trade or business.

    
    

11. Petitioner was certified by Respondent as a DBE for approximately eight, one-year periods prior to this proceeding. Petitioner was selected as the outstanding DBE for 1986 when Guptill and Myrick were officers and directors for Petitioner. Petitioner is presently certified as a DBE in Dade and Broward counties. Petitioner has consistently disclosed its relationship with P. J. to Respondent during the period of Petitioner's certification as a DBE.

    
    

12. On January 3, 1991, Petitioner timely filed a complete application for the certification period from April 3, 1991, through April 2, 1992, with Respondent. Respondent requested additional information not specified in the

    Florida Department of Transportation's Disadvantaged Business Enterprise's Certification Application, Schedule "A", including a financial statement and records of gross receipts for P. J. for 1989 and 1990. Petitioner attempted unsuccessfully to provide the additional information. The information requested by Respondent for P. J. was not within Respondent's possession or control and P.

    J. refused to provide such information. Respondent's consultant conducted an on-site review of Petitioner on April 16, 1991.

    
    

13. Respondent denied Petitioner's application for recertification on two grounds. First, Petitioner failed to provide the additional information requested by Respondent. Respondent, however, would not have requested the additional information if Respondent had known that Guptill and Myrick were not on the board of directors for Petitioner at the time of the denial. Second, Respondent determined that Petitioner is not an independent business entity.

    
    

14. Petitioner is an independent business entity based upon the substance of Petitioner's business rather than the form in which Petitioner's business is conducted. Guptill and Myrick terminated their positions as directors and officers for Petitioner in 1989. Any continued involvement in Petitioner's business by Guptill and Myrick since 1989 as officers or directors has been in form only. Guptill and Myrick remained as nominal officers for Petitioner on selected corporate documents executed for specific purposes. Even the nominal involvement by Guptill and Myrick as officers was terminated on January 8, 1991. Guptill and Myrick have been compensated for any other services performed by them. While Petitioner's record keeping has been ambiguous and less than accurate, the preponderance of competent and substantial evidenced adduced at the formal hearing shows that Guptill and Myrick have exercised no actual control over Petitioner and that their involvement in the conduct of Petitioner's business has been de minimis. The ownership and control of Petitioner, in substance, has remained continuously and resolutely in the hands of Smith.

    
    

    CONCLUSIONS OF LAW

    
    

15. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this proceeding. Section 120.57(1), Florida Statutes. The parties were duly noticed for the formal hearing.

    
    

16. Respondent administers a certification program which certifies applicants as disadvantaged business enterprises ("DBE"s). Sections 339.0805, 337.125, 337.135 and 337.137, Florida Statutes. DBEs are accorded competitive advantages and preferential treatment because they are eligible to participate in Respondent's Sheltered Program of set-aside contracts under DBE subcontract goals.

    
    

17. DBEs are small business concerns that are owned and controlled by socially and economically disadvantaged individuals as defined by the Federal Surface Transportation and Uniform Relocation Assistance Act of 1987, (STURRA),

    23 U.S.C. 101, et seq.

    
    

18. Chapter 339.0805(1)(b), Florida Statutes, provides in pertinent part:

    
    

    . . . It is the policy of the state to meaningfully assist socially and economically disadvantaged business enterprises through a program that will provide for the development of skills through construction and business

    management training, as well as financial assistance in the form of bond guarantees, to primarily remedy the effects of past economic disparity . . . .

    
    

    The United States Department of Transportation has promulgated 49 CFR, Part 23, to implement STURRA and provide guidelines for state "recipients" who receive federal highway funds.

    
    

19. Florida Administrative Code Chapter 14-78 implements STURRA at the state level and essentially restates the federal standards in all parts relevant hereto. Rule 14-78.002(3) defines a DBE as a small business concern which satisfies two criteria. First, a DBE must be at least 51 percent owned by "one or more socially and economically disadvantaged individuals." Second, the "management and daily business operations [of the DBE] must be controlled by one or more of the socially and economically disadvantaged individuals who own it."

    
    

20. Petitioner satisfies the minimum requirements for ownership of a DBE. At least 51 percent of the common voting stock of the corporation is owned by Mr. Jerry Smith ("Smith"). Smith is a socially and economically disadvantaged individual within the meaning of applicable state and federal law. Smith has substantial experience in the operation and management of Petitioner's business and in fact controls the Petitioner's management, daily business operations, cash flow, income, and capital.

    
    

21. Petitioner is an independent business entity within the meaning of Florida Administrative Code Rule 14-78.005(7). The ownership and control exercised by Smith is "real, substantial, and continuing . . . " and goes beyond mere pro forma ownership within the meaning of Rule 14-78.005(7)(c). Smith enjoys the customary incidence of ownership and shares in the risks and profits commensurate with his ownership interest. Smith's ownership and control of Petitioner is demonstrated by an examination of the substance of Petitioner's business, as evidenced by all of the surrounding facts and circumstances, rather than the form of specific financial and managerial arrangements.

    
    

22. Smith has "the power to direct or to cause the direction of the management, policies, and operations of the firm and to make day-to-day as well as major business decisions concerning the firm's management, policy and operation." Rule 14-78.005(7)(e). Smith's power to direct or cause the direction of the management, policies, and operations of the Petitioner and to make day-to-day as well as major business decisions concerning the Petitioner's management, policy, and operation is not subject to any formal or informal restrictions (including, but not limited to, by law provisions, partnership agreements, trust agreements or charter requirements for cumulative voting rights or otherwise) which would vary from customary managerial discretion in the industry. Nor do any of the business relationships with corporate owners vary from industry custom.

    
    

23. The non-socially and economically disadvantaged shareholders of Petitioner do not exercise control over Petitioner, directly or indirectly. Florida Administrative Code Rule 14-78.005(7)(f) recognizes that non-minority owners may participate in the management of the business. The interest and activities of Petitioner's non-DBE shareholders does not conflict with the ownership and control requirements of applicable rules and does not inhibit or reduce the ownership and actual control held and exercised by Smith.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered certifying Petitioner as a

Disadvantaged Business Enterprise.

DONE and ENTERED this 1 day of June, 1992, at Tallahassee, Florida.

DANIEL MANRY

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 1 day of June, 1992.

APPENDIX

Petitioner submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph numbers in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted.

Petitioner's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

34-35 Accepted in Findings 3, 14

36 Accepted in Finding 6

Respondent submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted.

Respondent's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

COPIES FURNISHED:

Williams H. Roberts, Esquire Assistant General Counsel Department of Transportation Haydon Burns Building, M.S. 58 605 Suwannee Street

Tallahassee, Florida 32399-0458

Ben G. Watts, Secretary Department of Transportation Haydon Burns Building, M.S. 58 605 Suwannee Street

Tallahassee, Florida 32399-0458

John O. Williams, Esquire Lindsey & Beck, P.A.

1343 East Tennessee Street Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 91-005224

Orders for Case No: 91-005224